Is Venture(V03) a hidden gem?

Is Venture(V03) a hidden gem?

Background review:
Venture Corporation Limited is a Singapore-based provider of technology services, products and solutions. The Company is engaged in providing manufacturing, product design and development, engineering and supply-chain management services. It operates through three segments:
1. Electronics Services Provider
2. Retail Store Solutions and Industrial
3. Component Technology

Recent Events & Related News:
April 5, Venture annual report of financial year 2016, refer to the report here.

March 21, ‘Singapore dividend plays still a draw’, check the news here.
March 10, ’S’pore tech sector ‘ripe for M&A, privatisation’, refer the news here.
Feb 24, ‘Venture Corp’s Q4 profit rises 21.6%’, check more details here.

Performance Summary:
Venture has shown solid performance in the financial year of 2016, with 8.2% increase of revenue and 17.3% growth of net profit. The company also reached their highest profit margin of 6.286% and return on equity (ROE) of 9.366%. Venture hold a healthy and stable balance sheet coupled with excess free cash flow. Additionally, the company paid steady dividend, which is projected to improve in the future. One thing worth mentioning is that Venture has reduced their expenditure on research and development (R&D), which is a vital prospect for a technology firm. The stock price of Venture is near its 52-week high recently.

Financial Highlights:
Data Source: ShareInvestor

1. Operating performance:

Quarterly comparison: compared to quarter four of 2015, Venture has witnessed 23.1% surge of revenue for 4 Q 2016.
Yearly comparison: during the recent five years, Venture maintained stable growth of revenue, barring a slight decline in FY2013. Compared to the performance in FY2015, Venture has observed 8.2% increase in revenue, plus 17.3% growth in net profit in the financial year of 2016. The impressive result of net profit is the combined outcome of higher revenue, less R&D expenses and higher government grants.

At the same time, Venture also achieved both highest profit margin and highest ROE in FY2016. From the chart, the two curves have upward trend since 2014 because of net profit growth. It is also important to clarify that the increasing ROE is solely a result of higher net profit but not of lower amount of equity(that can happen in some case). In FY2016, Venture’s profit margin is 6.286% and ROE is 9.366%.

2. Segment performance
In order to know how Venture improve performance, it is vital to review the contribution from each segment.

As the chart shown, 69.61% of the total revenue come from the electronics services provider segment, 24.37% of them is contributed by retail store solutions and industrial, and the rest 6.02% is driven by components technology.

Additionally, from the perspective of segment revenue, the biggest sector — electronics services provider segment gained 13.02% revenue growth in FY2016. The retail store solutions and industrial segment dropped 3.37% in revenue, and components technology segment increased 38.57% in revenue on a year-on-year comparison. Based on previous information, a conclusion can be drawn here that operating improvement of electronics services provider segment is the main source of growth of revenue for Venture in the financial year of 2016.

3. Financial and cash position
In FY2016, Venture had greater trade receivables, which contributed to higher revenue. The company also saw higher amount of inventories, which is stored for ’meet customers’ requirements and programmes’ according to the statement in financial report. Overall, Venture held a healthy balance sheet as they can meet obligations with sufficient working capital.
The current ratio was 2.36, quick ratio was 1.527, and Net Asset Value per share was $7.03.

Venture held $474.73m cash & cash equivalent at the year end of 2016, plus the bank balances, the company had $499.74m cash amount in total. Therefore, the company can be considered as rich in cash, with favourable liquidity and solvency.




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